How Should Companies Navigate in the new Complex Regulatory Landscape of Sanctions?

The impacts of sanctions have increased during the last few years and not the least the ones targeting Russia. Most companies, regardless of where their manufacturing takes place or where their suppliers or customers are located, need to consider the impact of sanctions when entering into all sorts of contracts, including when contemplating M&A transactions. The latest Sanctions package targeting Russia which has been implemented in EU law, the 13th in order, was adopted in March 2023. This myriad of prohibitions force companies to face a new regulatory reality, and with each new Sanctions package, the responsibilities increase. In parallel the EU is also preparing to adopt a directive which aims to strengthen the enforcement actions against companies that do not abide by the sanctions.

Areas covered by the Sanctions

The Sanctions include, inter alia, the following:

• Prohibition to make funds and economic resources available to listed individuals and entities. This means that companies must keep track of their business partners and whether they or their beneficiaries are listed.
• Import restrictions on e.g., iron and steel products. Iron and steel products with origin in Russia, even if processed in a third country, may not be imported to, or purchased in the EU.
• Export controls. Since the prohibition includes indirect sales of certain products companies must screen re-exports and end-users.
• Obligation to include a re-export clause in contracts. Such obligation applies to companies when exporting aviation, jet fuel, firearms, and certain high priority items (e.g. microelectronics, navigation equipment, and machine tools to work metal) to countries outside the EU and its partner countries.
• Prohibition to provide certain services. The EU has prohibited the provision of certain services to legal persons, entities or bodies established in Russia. This include accounting and tax consulting, architectural and engineering, legal advisory, IT consultancy, market research, software services, and technical assistance, brokering services or other services related to the products covered by the Sanctions.
• Sector specific bans. Certain sectors are specifically targeted by the Sanction regime, such as the energy and aviation sectors.

Far-reaching risks when breaching the Sanctions

In addition to contributing to Russia’s possibilities to wage war and the predominant risk of bad-will if attracting attention from the media, representative liability and corporate fines are on the list of possible consequences when breaching the Sanctions. Sweden has a criminal law prescribing as long as four years of imprisonment when breaching international sanctions. Even gross negligence can ultimately lead to representatives of a company being put behind bars. In order to strengthen the enforcement of sanctions, the EU is currently working on a directive that is expected to result in more far-reaching criminal sanctions and enforcement. Attempts and complicity to violations of the Sanctions will be covered and higher sentences will follow.

Delphi’s recommendations

As a starting point, we recommend that companies:

• Appoint designated employee(s) that make sure the company keeps updated on new Sanctions and identifies which prohibitions applies to the company’s activities.
• Review new business partners and their beneficiaries against sanction lists and from a general sanctions perspective before entering into agreements.
• Regularly monitor business partners’ compliance by requesting relevant documentation and conduct online research.
• Consider requesting certifications of compliance with the Sanctions.
• When applicable, companies need to screen products and services.

For acquisition-intensive companies, it is crucial to always take diligent measures on these matters at an early stage.

Delphi regularly assist companies to navigate in this new terrain, to develop a compliance programme specific for the company’s operations as well as drafting documents necessary for compliance.